A quiet revolution is gathering in pace. It is of immense significance because, if it succeeds, it will catalyze a new source of economic prosperity, help reverse the global decline in biodiversity, sustain nature and significantly improve human wellbeing. In short Natural Capital Accounting could transform economic development.
Whilst studying for a pioneering MBA at Exeter University, I learned how progressive companies minimize their environmental impacts and make positive contributions wherever they operate. However, I realized that there was a major disconnection: as WWF and the UN have recently highlighted, humanity's impact on nature is still increasing.
I now recognize that advances in corporate practices and political ambition towards environmental sustainability are too slow because:
- We make use of nature's finite resources for free; and
- When ecosystems are damaged, the reduction in their capacity to support future economic growth and value creation is rarely considered.
Nature therefore loses out to the economy because the financial benefits realized by protecting it are comparatively small and are usually in direct conflict with mainstream business strategies. As a result, the effective protection of natural ecosystems is almost always an uphill battle that is too often trumped by short‑term financial gains. So, for most companies, creating shareholder value whilst operating within 'planetary boundaries' remains incredibly hard to achieve.
However, if companies were to include in their financial accounts how much they contributed to or detracted from 'natural capital' -- a measure of the ability of nature to deliver economically significant ecosystem services -- something fundamental to the way that the economy works would change. The prices of all products and services would be affected by how environmentally beneficial or damaging they were so companies would have a substantial financial incentive to protect and enhance ecosystems. Pilot projects such as that being worked on by Dow Chemicals to value wetlands would become commonplace as practically every business decision in every company would account for its impact on nature.
Natural capital is not about putting an absolute value on nature so that it can be traded. Rather, it will adjust the profitability of business: Whether in agriculture, mining, finance or consumer retail, Natural Capital Accounting will add value to companies that respect nature. In order to deliver their fiduciary responsibilities to shareholders, companies will adopt sustainable business principles such as those espoused by the Circular Economy. Therefore, whether large or small, sustainable companies will gain a new competitive advantage and, in time, will come to dominate the economy.
Furthermore, the UK Government has already established that nature supports business, increases wealth and contributes to economic growth and at least 21 countries are developing legal and policy frameworks for natural capital accounting. These nations are pioneering policies that balance agriculture, industrial activity and the built environment with maintaining nature. Therefore by proving that economic development is dependent on a healthy environment, Natural Capital Accounting is showing that sustainable development is not only an achievable goal but that the prosperity and the wealth of all nations depends on it.
Valuing nature is complex, there are immense challenges and political will needs to be developed. However, it is possible. Projects are therefore already underway to:
- Integrate the financial benefits that companies gain from ecosystems as well as the impacts that they cause into corporate financial accounting; and
- Merge environmental indicators into the financial and economic statistics used in national accounts.
Leading these initiatives, are organizations and programs like the Natural Capital Coalition: developing a protocol for business; the World Bank led WAVES partnership: piloting with several countries how the value of natural capital can be integrated into national accounts and used to inform development policy; and GLOBE Legislators: engaging the support of governments to update business reporting obligations and implement environmental economic accounting.
Natural Capital Accounting will not replace the urgent need for conservation, protected areas and local stewardship. Rather, as is already being considered by Credit Suisse, it could make conservation finance a profitable investment and a component of normal business activity that would unlock hundreds of billions of dollars of investment in nature itself. Ultimately, when an economic paradigm develops that values the financial benefits of ecosystems then safeguarding nature and increasing biodiversity will become commonplace without the need for endless campaigning.
The concept of valuing natural capital is already included in the Sustainable Development Goals and the wider Post-2015 Development Agenda, but how significant it will be is not yet certain. Regulation will be necessary to ensure common standards and approaches. However, there first needs to be a wide agreement. Therefore, with a short window of opportunity available, it is time for nations, business, environmental groups and civil society to support and contribute to this crucial discussion.
As will be highlighted at the Natural Capital Initiative's summit, this quiet revolution is set to become pervasive in business and national accounting and will help to transform the goals of economic development. Natural capital accounting will provide the evidence and financial justification that companies and governments require to deliver economic growth and create value by enhancing, protecting and securing nature. And, as a result, people in every nation will benefit for generations to come.
This blog post is part of the Plan B for Business series produced by The Huffington Post and The B Team community to help articulate a Plan B for Business. To see other posts in the series, click here. For more information about The B Team, click here.